PREP Guide - Rules and Agreements Flashcards
ECCHO Operating Rules and Commentary
What is ECCHO?
ECCHO is a check clearinghouse service of The Clearing House Payments Company L.L.C.
ECCHO’s membership consists solely of U.S. depository institutions.
ECCHO Operating Rules and Commentary
What do the ECCHO Operating Rules and Commentary govern?
The ECCHO Rules govern electronic check and electronic returned check transactions between Members.
The Rules may vary provisions of the UCC with respect to a person interested in a check processed under these Rules.
ECCHO Operating Rules and Commentary
Who are the Members of ECCHO?
Members of ECCHO are U.S. depository institutions.
Only Members can use the ECCHO Rules for transactions.
ECCHO Operating Rules and Commentary
Can ECCHO Rules govern transactions between a Member and a non-Member?
No, ECCHO Rules do not govern transactions between a Member and a non-Member entity.
This includes any private agreements that attempt to use the ECCHO Rules.
ECCHO Operating Rules and Commentary
What is the purpose of the Commentary section in ECCHO Rules?
The Commentary describes the intended purpose of the Rule and additional implementation issues.
It also addresses possible applications of the Rule to various hypothetical situations.
ECCHO Operating Rules and Commentary
Who approves changes to the ECCHO Rules?
Changes are approved by the ECCHO Business Committee.
The Committee considers input from the Operations Committee, Working Groups, individual Members, and Sponsoring Organizations.
ECCHO Operating Rules and Commentary
What happens once changes to the ECCHO Rules are approved?
Changes become binding on all Members as of the effective date established by the Business Committee.
Members must comply with the updated Rules.
ECCHO Operating Rules and Commentary
Where can one review or download a complete copy of the ECCHO Rules?
The complete copy of the Rules is available on the ECCHO website.
It is freely available to the public.
ECCHO Operating Rules and Commentary
What do the ECCHO Rules recognize and build upon?
The ECCHO Rules recognize and build upon existing check law, such as the UCC and Regulation CC.
Regulation CC is a federal regulation that governs the availability of funds and the collection of checks.
ECCHO Operating Rules and Commentary
What is the main goal of ECCHO as a national clearinghouse?
To facilitate the exchange of electronic check transactions between depository institutions of all sizes throughout the United States.
FRB OC3 - Collection of Cash Items and Returned Checks
What is the purpose of Operating Circular 3 (OC 3)?
To handle all cash items sent or received by the Federal Reserve Bank for forward collection and returned checks
OC 3 is issued along with Subpart A of Regulation J and Subparts C and D of Regulation CC.
FRB OC3 - Collection of Cash Items and Returned Checks
Which regulations and acts is OC 3 issued pursuant to?
Federal Reserve Act, Expedited Funds Availability Act, Check Clearing for the 21st Century Act (Check 21 Act)
Also conforms with Regulation J and Regulation CC.
FRB OC3 - Collection of Cash Items and Returned Checks
What types of items does OC 3 cover?
Cash items and returned checks
It includes instructions for paying, collecting, returning, and depositary banks.
FRB OC3 - Collection of Cash Items and Returned Checks
Who is bound by the provisions of OC 3?
All parties interested in an item handled by the FRB
Provisions may vary by agreement with certain sections of Check 21 Act, the Uniform Commercial Code, or Regulation CC.
FRB OC3 - Collection of Cash Items and Returned Checks
What are some key provisions outlined in OC 3?
- Items We Handle as Cash Items
- Items We Do Not Handle as Cash Items
- Definitive Securities; Noncash Items; Electronically-Created Items
- Preparation and Handling of Items
- Image Cash Letters and Image Return Letters
- Paper Cash Letter and Return Letters
- Time Schedules and Availability of Credit
- Routing Number; Records
- Shipment and Presentment
- Settlement for Cash Letters
- Designation of Settlement Account
- Missent Cash Items
- Returned Checks
- Notice of Nonpayment Service
- Charges
- Exceptions and Adjustments
- Missing or Destroyed Cash Items and Returned Checks
- Cut-Off Hour
- Electronic Access to FRB’s Check Services
- Claims Against the FRB
This list is not exhaustive.
FRB OC3 - Collection of Cash Items and Returned Checks
What is included in Appendix A of OC 3?
Government Checks
Appendices include various types of cash items and services.
FRB OC3 - Collection of Cash Items and Returned Checks
What recent changes were made to OC 3 regarding Treasury checks?
It includes notice to financial institutions when Treasury has stopped payment on a check
The Federal Reserve Bank will adjust or return government checks per U.S. Treasury instructions.
FRB OC3 - Collection of Cash Items and Returned Checks
Fill in the blank: OC 3 was amended to include recent changes that the _______ made to regulations governing Treasury checks.
Treasury Department’s Bureau of Fiscal Service
This amendment ensures compliance with updated regulations.
FRB OC3 - Collection of Cash Items and Returned Checks
What governs and controls the terms related to Treasury checks as per OC 3?
31 CFR Part 240
This regulation outlines the definitions and terms applicable to Treasury checks.
FRB OC3 - Collection of Cash Items and Returned Checks
True or False: OC 3 applies only to cash items and does not include returned checks.
False
OC 3 explicitly includes both cash items and returned checks.
Nacha – Automated Clearing House (ACH) Rules
What are the ACH Operating Rules and Guidelines produced by?
Nacha
Nacha serves as the definitive source of information governing the exchange and settlement of electronic funds transfers through the ACH network.
Nacha – Automated Clearing House (ACH) Rules
What do the ACH Operating Rules provide users with?
The legal framework
Guidelines provide guidance on implementing the rules.
Nacha – Automated Clearing House (ACH) Rules
What is the purpose of the Nacha Operating Rules?
To standardize the roles and responsibilities of all parties using the ACH Network
This includes consumers, businesses, credit unions, banks, and government entities.
Nacha – Automated Clearing House (ACH) Rules
What is one of the benefits of the ACH Rules?
They help manage risk and create certainty for all participants.
Nacha – Automated Clearing House (ACH) Rules
List the articles included in the Nacha Operating Rules and Guidelines.
- General Rules
- Rights and Responsibilities of ODFIs, their Originators and Third-Party Senders
- Rights and Responsibilities of RDFIs and their Receivers
- Rights and Responsibilities of ACH Operators
- Rights and Responsibilities of Gateways for IAT Entries
- Rights and Responsibilities of the National Association
- Settlement
- Definition of Terms Used in the Rules
Nacha – Automated Clearing House (ACH) Rules
What are some appendices found in the Nacha Rules?
- ACH File Exchange Specification
- Specifications for Data Acceptance by ACH Operators
- ACH Record Format Specifications
- Return Entries
- Notifications of Change
- Acknowledgment Entries
- Compensation Rules
- Rule Compliance Audit Requirements
- Arbitration Procedures
- Rules Enforcement
- Determination and Review of Same Day Entry Fee
Nacha – Automated Clearing House (ACH) Rules
What happens when a paper check is converted to an ACH transaction?
The check is no longer under check law but is covered by the Nacha rules with consumer coverage under Reg E.
Nacha – Automated Clearing House (ACH) Rules
Define ARC in the context of ACH check conversion.
Accounts Receivable Entry
Check provided to biller for payment by mailing a check or at a staffed bill pay location.
Nacha – Automated Clearing House (ACH) Rules
Define POP in the context of ACH check conversion.
Point-of-Purchase Entry
Made at point of purchase with check voided by merchant and returned to consumer.
Nacha – Automated Clearing House (ACH) Rules
Define BOC in the context of ACH check conversion.
Back Office Conversion Entry
Made at the point-of-purchase or at a staffed bill pay location for subsequent conversion during back-office processing.
Nacha – Automated Clearing House (ACH) Rules
What does TEL stand for in ACH transactions?
Telephone-Initiated Entry
A single or recurring entry consumer debit transaction made upon oral authorization obtained over the telephone.
Nacha – Automated Clearing House (ACH) Rules
What does WEB stand for in ACH transactions?
Internet-Initiated/Mobile Entry
Transaction authorized on the Internet or wireless network.
Nacha – Automated Clearing House (ACH) Rules
What does RCK stand for in ACH transactions?
Re-presented Check Entry
Returned check due to insufficient or uncollected funds re-presented electronically through the ACH.
Nacha – Automated Clearing House (ACH) Rules
What does XCK stand for in ACH transactions?
Destroyed Check Entry
Used to collect certain checks that have been lost, destroyed, or are otherwise unavailable for check processing.
Nacha – Automated Clearing House (ACH) Rules
True or False: Most POP entries need to be returned by the RDFI by the opening of business on the banking day following the Settlement Date.
True
Nacha – Automated Clearing House (ACH) Rules
What are the circumstances under which an RDFI may return a POP entry after sixty calendar days?
- No notice was provided to the Receiver about the conversion
- The source document was not an eligible source document
- The source document was presented for payment as a check through the check collection system.
Nacha – Automated Clearing House (ACH) Rules
What is required from the Receiver prior to being re-credited for an unauthorized debit?
A written statement of unauthorized debit.
Nacha – Automated Clearing House (ACH) Rules
For specific usage and requirements for entries within the ACH network, what should be reviewed?
The Nacha Operating Rules and Guidelines.
Agreements
What is the purpose of operational agreements in the exchange process?
To address the logistics of a specific exchange
Agreements
Name one type of operational agreement mentioned.
Banking Practice Agreement (BPA)
Agreements
What do agreements specify in relation to image exchanges?
Processing and logistical aspects
Agreements
What is one item that may be included in an agreement?
Start date(s) for exchanges
Agreements
Fill in the blank: An agreement may state that the parties agree to the exchange under the _______.
rules
Agreements
What does the routing number identification pertain to?
File Header Records
Agreements
What are Bank-to-Bank Agreements?
Agreements covering private sector exchanges between banks
Agreements
True or False: Bank-to-Bank Agreements can only be bi-lateral.
False
Agreements
What type of agreements cover Customer-to-Bank exchanges?
Deposit account agreements
Agreements
What should banks review when developing the RDC customer agreement?
Guidance from the FFIEC regarding risk mitigation and reporting requirements
Agreements
What is the purpose of Bank-to-Vendor Agreements?
To address liabilities and responsibilities of a third-party agent in check processing
Agreements
Name a consideration for Vendor Agreements.
Compliance with check laws
Agreements
Fill in the blank: Banks have the ability to close the _______ account.
processor
Agreements
What does Check 21 relate to in terms of vendor liability?
Potential for consequential damages for reconverting banks
Agreements
What is a potential liability concern mentioned for vendors?
Liability for duplicate check images
Agreements
What is one aspect that the vendor’s indemnity/liability must cover?
Warranties made by the bank to other parties in the check collection system
Agreements
What may be included in the scope of an agreement regarding adjustments?
Adjustments Process or Organization
Agreements
What is the Image Ledger Cut-off Time?
A deadline for processing image exchanges
Agreements
What type of agreements can be oral or written in nature?
Bank-to-Bank Agreements
Agreements
What is a key point to ensure when developing agreements for image-enabled services?
Coverage of all points in the guidance from the FFIEC
What does Operating Circular 3 (OC 3) apply to?
Handling of all cash items accepted for forward collection and all returned checks accepted for return by the Federal Reserve
OC 3 outlines the procedures and regulations for cash items and returned checks processed by the Federal Reserve Bank.
What role does the Federal Reserve Bank (FRB) play under Operating Circular 3?
The FRB is a party to the sending and receiving of items under these rules
The FRB facilitates check processing by incorporating both federal and state regulations.
Which federal and state regulations are incorporated under Operating Circular 3?
Reg J, Reg CC, and UCC
These regulations govern various aspects of check processing and handling.
What are the Private Sector Image Exchange Rules?
Rules that apply to the forward collection and/or return of electronic checks/electronic returned checks between ECCHO members
ECCHO stands for Electronic Check Clearing House Organization.
Is participation in ECCHO Rules mandatory?
No, participation is voluntary
However, once agreed upon, members must conform to the provisions of the ECCHO Rules.
What regulations do ECCHO Rules incorporate?
Federal and State regulations (Reg CC and UCC) regarding check processing
These regulations ensure compliance and standardization in electronic check exchanges.
What are Bi-lateral or Multi-lateral Agreements?
Unique rules for exchanging images between two or more parties, outlining specific areas of interest for that exchange
These agreements are tailored to the needs of the involved parties.
What is required for Bi-lateral or Multi-lateral Agreements when adding new relationships?
Must be renegotiated for each new relationship added
This ensures that all parties are aligned on the rules and expectations for the exchange.
ECCHO Rules may be used to cover the exchange of a check image via remote deposit capture from a merchant to a depositary bank. True or False?
False
ECCHO Rules may only be used to cover image exchanges between members that have agreed to exchange under the rules and ECCHO members may only be U.S. depositary financial institutions.
Who can use ECCHO Rules for image exchanges?
Only U.S. depositary financial institutions that are members of ECCHO
ECCHO members must have agreed to exchange under the rules.
What type of agreement covers images sent via remote deposit capture?
An agreement between the customer and their depositary bank
This is separate from ECCHO Rules which do not apply to such exchanges.
What is ECCHO?
ECCHO is a check clearinghouse whose membership consists solely of U.S. depository institutions.
ECCHO stands for Electronic Check Clearing House Organization.
What do ECCHO Rules govern?
ECCHO Rules govern electronic check/electronic returned check exchanges between two Members.
These rules are under the UCC (Uniform Commercial Code).
Who can use ECCHO Rules?
Only members of the clearinghouse can use ECCHO Rules.
Non-Members cannot be governed by these rules.
Can ECCHO members use the rules for transactions with non-Members?
No, ECCHO members may not use the ECCHO Rules to govern transactions with non-Members.
This includes private agreements between parties.
Fill in the blank: ECCHO Rules apply only to _______.
Members of the clearinghouse.
True or False: ECCHO is applicable to transactions involving non-Member entities.
False.
What is a Banking Practice Agreement?
Agreements that outline specific operational aspects for image exchanges
Sometimes referred to as BPA. They work in conjunction with the rules and specify certain processing and logistical aspects.
What aspects do Banking Practice Agreements specify?
Processing and logistical aspects for image exchanges
They may be incorporated with other network or clearing house rules.
True or False: Banking Practice Agreements are standalone documents.
False
They work in conjunction with the rules and may be incorporated with other network or clearing house rules.
Fill in the blank: Banking Practice Agreements sometimes are called _______.
BPA
BPA stands for Banking Practice Agreement.
